Getting real

I have neglected this blog in recent months, as my time has been spent elsewhere. But I have been considering ideas for articles and drawn up a plan now, which will be implemented in the weeks and months to come. There have been some interesting recent developments in credit hire but also a need to return to first principles: appeals keep crossing my desk, which are often based on simple mistakes or misunderstanding of disclosure, evidence, the law relating to misrepresentation and sadly, judicial bias.

But an interesting case that came to my attention last week is that of Kindertons Limited v Georgina Murtagh and Esure Services Limited [2024] EWHC 471 (KB) a decision of Mr Justice Turner on appeal, from Mr Recorder Gallagher sitting in the County Court at Chelmsford. The appeal concerned the vexed and vexing question as to whether it had been just to make a non party costs Order (NPCO) against a credit hire company. A copy of the judgment can be found here: Kindertons Limited v Georgina Murtagh, Esure Services Limited.

I have dealt with many such applications over the years. One of the pleasures of getting old is that one can trace the evolution of the law in any number of fields. Thus 15 years ago, the law was running strongly against the credit hire companies, with a decision in the Court of Appeal against them. In the last couple of years, the decisions have been running against the motor insurers, particularly at Circuit Bench level, on the basis that in most instances credit hire companies lacked the requisite degree of control over the litigation, or for reasons of causation, it was unjust to make an NPCO against them.

The Esure case bucks this trend, and Mr Justice Turner has confirmed on appeal that the Recorder was correct (not wrong) to make an NPCO. As a decision of the High Court on appeal is binding on lower courts on matters of principle, this is a salutary victory for the insurers: the question now is what wider significance this decision will have. Does it establish principles which will be of wider application, or will it be limited to its own particular facts? There are two areas which I have no doubt will be the subject of debate in the weeks and months to come: those of control and causation.

The facts were described in unpromising terms by the judge:

8.Within two days of the accident, a representative of Kindertons telephoned Mr Ibrahim to discuss providing him with a replacement vehicle. He returned the call on the afternoon of 22 February and spoke to a representative by the name of Rachel. The call was recorded. He described the damage to his vehicle, somewhat cryptically, as:

“… not a lot of damage. It’s just basically the back bumper. It looks a bit out of line…and when I open the boot they don’t close and where with the key you could open the boot where it pops automatically open…it won’t do that time to time.”

9..Upon this slender basis, Mr Ibrahim was readily persuaded that he should not be driving the car and that he ought straightaway to hire an alternative vehicle from Kindertons. It is to be noted that in a report later provided by JP Morris assessors on behalf Kindertons the author concluded that Mr Ibrahim’s Audi had suffered no damage in the accident which would have rendered it unroadworthy. The repairs would take four to five days to complete.

10. Rachel told Mr Ibrahim:

“Just so you are aware…we are gonna be providing you with the replacement vehicle. Now the vehicle that we do give to you, it is a hire car, not a courtesy car, which we provide for you on a credit hire basis, now all this means is that the charges are recovered from the negligent driver’s insurance company, and the agreement between you and us is there’s no cost to you. So you do not have to pay for any hire or repair aspect of things”

11. She went on to pre-empt any attempt by Esure to offer to provide Mr Ibrahim with a less expensive alternative hire car:

“If the other person’s insurance company should happen to call you, I would just ask you to please ignore their call or any advice that they provide, just ‘cause they will try and reduce what you’re entitled to in respect of your vehicle value and your legal entitlement to a hire car, err, the other company is called Esure, so if you hear erm, of or get a phone call from Esure just tell them that Kindertons are dealing with the claim and end the call from there, OK?”

The credit hire agreement contained a multitude of terms described by the judge as follows:

13. The terms and conditions of hire included the following:

i. Deferment of the obligation to pay the hire charges until the conclusion of the claim for damages against the third party (Clause 7(a));

ii. The right on Kindertons’ part to appoint an ‘external contractor’ to assist with that claim (Clause 7(a));

iii.The right on Kindertons’ part to pursue an action in the hirer’s name against the third party (Clause 7(b));

iv. The right on Kindertons’ part to pursue an action through the County Court and/or High Court coupled with an obligation on the hirer’s part to co-operate in the conduct of the action (clause (7(c));

v. A provision that any default of condition 7 would result in termination of the agreement forthwith and repayment of the hire charges being immediately due in full (Clause 8).

14. Also on 23 February, Mr Ibrahim entered into a credit agreement with Kindertons in respect of repair, recovery and storage facilities. The terms and conditions provided:

i. The obligation to pay the repair, recovery and storage charges would be deferred pending conclusion of any claim against the third party (clauses 1.2, 1.4);

ii.  A right on Kindertons’ part to instruct repairers on Mr Ibrahim’s behalf (Clause 1.7);

iii. A right on Kindertons’ part to instruct an engineer and agree repair costs on Mr Ibrahim’s behalf (Clause 1.8);

iv. A right on Kindertons’ part to pursue a claim in Mr Ibrahim’s name against the Third Party (Clause 2.3);

v. An obligation on Mr Ibrahim’s part to pursue a claim against the Third Party (Clause 2.3);

vi. A right on Kindertons’ part to appoint an Authorised Representative to pursue the claim in Mr Ibrahim’s name (Clause 2.4);

vii. An obligation on Mr Ibrahim’s part to provide all reasonably necessary co-operation and assistance for the pursuit of the claim (Clause 2.5);

viii. An obligation on Mr Ibrahim’s part not to agree any settlement proposals without Kindertons’ agreement (Clause 2.6);

ix. An obligation on Mr Ibrahim’s part to pay any settlement cheque to Kindertons’ from which Kindertons’ would be entitled to deduct sums due to it (Clauses 2.7 and 2.8);

x. An immediate liability on Mr Ibrahim’s part to pay all sums due if he were to breach the terms of the agreement in any significant respect (clauses 2.9 and 2.10);

xi. A retaining lien on Kindertons’ part to retain the Claimant’s vehicle if the agreement were terminated until all sums due to it under the agreement are paid (Clause 2.10).

Against this background of fact, the judge started a hare running by openly pondering in his judgment what the potential impact of the Consumer Rights Act 2015 would be in terms of issues of enforceability, although in the event this point fell away.

But he went onto dismiss the appeal, noting this in relation to control:

44. There is a danger that the concept of “control” is wrongly treated as if it were a traffic light, governing access to the exercise of court’s discretion to make a non-party costs order, which is showing either red or green. Control is almost invariably a matter of degree. As a concept, it is relevant to the extent that, in any given case, the greater the level of control exercised by the non-party the more likely it will be that the court will exercise its discretion in favour of making a NPCO.

45. As the Court of Appeal held in Deutsche Bank AG v Sebastian Holdings [2016] 4 W.L.R. 17 at para 62:

“We think it important to emphasise that the only immutable principle is that the discretion must be exercised justly. It should also be recognised that, since the decision involves an exercise of discretion, limited assistance is likely to be gained from the citation of other decisions at first instance in which judges have or have not granted an order of this kind.”

46. On the facts of this case, there was a high degree of control. The contractual terms identified above tied Mr Ibrahim into bringing a claim and continuing it at the risk of incurring serious financial consequences in the event that he were to fail to comply. It matters little, if anything, that such consequences were not, in the event, visited upon Mr Ibrahim. It is the threat and not the execution of repercussions which forms the usual basis for control.

47. Furthermore, within only two days of the accident, Rachel was encouraging Mr Ibrahim to hire a vehicle from Kindertons on credit hire rates at no cost to him and, importantly, directing him not to engage with Esure. This was presented to Mr Ibrahim on the basis that any such engagement might prejudice his interests but, in reality, I am satisfied that any engagement with Esure risked compromising the interests of Kindertons who thus wished to choreograph the progress of the litigation to preclude this.

And in relation to causation:

51. Kindertons relies upon the more recent authority of XYZ v Travelers Insurance Co Ltd [2019] 1 W.L.R. 6075 in which the Supreme Court considered the relevance of causation in a claim for a NPCO against liability insurers. Particular reliance is placed upon the observations of Lord Briggs on the role played by the element of causation in NPCO cases. However, Lord Briggs was careful to circumscribe the scope of his observations in the following terms:

“30.  It is not the purpose of this judgment comprehensively to reassess those generally applicable principles. It may be (and I am reluctantly prepared to assume but without deciding) that they really are limited, as the Court of Appeal thought in the present case, to the twin considerations of exceptionality and justice. The same general conclusion is to be found in the Deutsche Bank case. That said, I share all Lord Reed DPSC’s concerns as to the lack of content, principle or precision in the concept of exceptionality as a useful test. Rather, this is an occasion to consider, in more granular detail, the principles which ought to apply to that distinct part of the broad spectrum of non-parties occupied by liability insurers. While doing so it will be appropriate to make some brief observations about the impact of those general principles in the liability insurance context, and in particular about the role played by the presence or absence of a causative link between the conduct of the non-party relied upon and the costs which the applicants incurred which they seek to recover against the non-party under section 51 .”

52. From this passage alone, it is clear that Lord Briggs was not intending to lay down any general guidance on causation applicable to all NPCO applications.

53. He went on to observe:

“31.  Liability insurance serves an obvious public interest. It protects those incurring liability from financial ruin. More importantly, it serves to minimise the risk that persons injured by the insured will go uncompensated as a result of the insured’s lack of means. Unlike ATE insurance it is not primarily aimed at making a profit by assisting in the funding of litigation but, where liability becomes the subject of litigation, the insurance typically contains provision under which the insurer is obliged to fund the insured’s defence and, as an inevitable concomitant, entitled to exercise substantial (although not always complete) control over the conduct of its insured’s defence. The liability insurer is therefore typically an involuntary rather than voluntary funder of litigation, and the control which the insurer habitually exercises over the conduct of its insured’s defence arises from a pre-existing contractual entitlement, rather than from a freely-made decision to intermeddle.”

54. The position of Kindertons is different. It involved itself voluntarily and enthusiastically in the claims after the accident giving rise to it. This not to say that the services provided could not, in appropriate cases, serve a public interest but, unlike liability insurers, its involvement was a matter of choice in the expectation of profit specifically related to the legal proceedings to follow.

55. Lord Briggs went on to say:

“66.  The causation requirement was not the subject of challenge on this appeal. It does not appear to have featured in the other Chapman cases, but their facts suggest that the relevant costs ordered to be paid would not have been incurred, but for the exceptional conduct relied upon. In cases such as the present, where it is the intermeddling test rather than the real defendant test which falls to be applied, the formulation of that test by Phillips LJ in the passage in the Chapman case [1998] 1 WLR 12 quoted above clearly incorporates a need to demonstrate causation, since it is the costs attributable to the intermeddling that the meddler is ordered to pay.”

56. In this case, the issue of whether or not Kindertons was a real party to the litigation with respect to the recovery of credit hire charges was and remains a central one and so falls to be distinguished from the category of intermeddler cases to which Lord Briggs was directing his attention in this passage on the need to demonstrate causation. It could not be said that it was none of Kindertons’ business to involve itself in the progress of the litigation. On the contrary, it was very much its business both in a literal and metaphorical sense.

57. In my view, on the circumstances of this case and without seeking to lay down any general rule relating to the appropriateness of NPCOs against credit hire companies, I am satisfied that the Recorder was right to conclude that it was just to make the order and he was not obliged to make any specific finding in respect of “but for” causation before so doing. In particular, Kindertons was exercising a degree of control over the most valuable of Mr Ibrahim’s claims on the basis of instructions from Rachel the specific intention of which was to neuter any attempts by Esure to limit its exposure to the hire claim which had the potential to reduce Kindertons’ profits. In my view it was neither fair nor just that it should be permitted to do this without exposing itself to the potential consequences of a NPCO.

58. By ordering Kindertons to pay 80% of the costs, the Recorder was exercising his discretion appropriately to reflect the proportionate benefit which it stood to obtain if the claim for hire charges had succeeded. An attempt mathematically to calculate on a “but for” basis of causation would simply not have reflected the unfairness of allowing Kindertons a free ride on the coat tails of Mr Ibrahim’s claim.

A very interesting case. Does it mark the start of the tide turning against the hire companies and in favour of the insurers? Time will tell.

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